Salient to Investors:

Heidi Moore writes:

In July, the Bureau of Economic Analysis will add Hollywood royalties from TV, movies and songs and revenues from scientific R&D to GDP measurements, boosting GDP by as much as 3% from 0.4% currently. Adding in Hollywood royalties may boost US economic growth by as much as 3% but such creative accounting cannot end well.

US lives will not actually change, but higher GDP will allow Washington to point to a higher GDP and “recovery” and pay less attention to Paul Krugman’s permanent class of jobless Americans. Economic inequality of all kinds will be papered over and America’s growing problem with poverty will move to the back-burner.

Robin Harding at the Financial Times says the changes will force economists to revisit policy debates about everything from corporate profits to the causes of economic growth.

The BEA is carrying the major changes all the way back to 1929 and admits it is essentially rewriting economic history. In other words, most economists will have to toss out nearly all the work they’ve already done.

It will be harder to know when we are in a recession. Getting to negative GDP will be harder when GDP is 3%, but when we do we will be in truly terrible shape.

The new measures are notoriously unreliable. Hollywood royalties are notoriously tricksy accounting as shown by lawsuits this year against the 4 major studios over their accounting of royalties back to the 1970s.

GDP was set to be depressing for the foreseeable future as people are not consuming as much and government spending is falling – exports are doing fine but not enough to make up for the other two.

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